Profit First in Your Business: A deep dive in Profit First
Profit First System: An easy financial system that you can use at any level in your business.
Hey friend! I'm thrilled you're here because today, I’m diving into a topic that has completely transformed the way that you can handle your business finances, and something that a lot of accountants and Fractional CFOs still aren't doing with their clients.
If you've ever felt overwhelmed by managing your money or unsure about how to make your business more profitable, you're in the right place.
This blog will dive into What is the Profit First method, What is the Profit First Mentality, and answer the good old question, Does Profit First actually work. Let's Go!
Below is a Video that will help you understand Profit First
What is Profit First Method?
Profit First is more than just a book by Mike Michalowicz—it’s a comprehensive money management system designed for businesses of all sizes.
The idea is simple and contrarian: prioritize profit by setting it aside first, rather than treating it as what's left over after all expenses are paid.
This method ensures that profit becomes a habit, not an occasional event.
It flips the switch on what we've been taught traditionally with profit.
Profit First, looks at profit with the lens of Sales - PROFIT = Expenses
Whereas, traditionally, we've been taught that PROFIT = Sales - Expenses
The concept is straightforward: every time you receive income, you immediately take a predetermined percentage and allocate it to profit.
This shift in mindset—from seeing profit as an afterthought to a priority—can make a huge difference in how you run your business.
Setting Up Profit First Bank Accounts
A key component of the Profit First system is setting up multiple bank accounts, each designated for a specific purpose.
This might sound complicated, but trust me, it’s easier than you think and incredibly effective.
By dividing your money into separate accounts, you can manage it more intentionally and avoid the common pitfalls of overspending or under-saving.
Here’s how to set up your accounts:
Income Account: This is where all your revenue goes. It’s purely for receiving money, and nothing should be taken out of this account except for transfers to your other accounts.
Profit Account: This account is for your profit—money you’ve set aside to ensure your business is profitable. It’s a safety net and a reward for your hard work.
Owner’s Compensation Account: Pay yourself first! This account is for your salary or personal draw from the business.
Taxes Account: Set aside money for taxes to avoid any surprises come tax season.
Expenses Account: This is where all your operational costs are paid from, helping you keep track of your spending and stay within your budget.
By using these separate accounts, you’ll be able to see exactly where your money is going and make better financial decisions. It’s like putting your business on a budget, but with more clarity and control.
Choosing the Right Bank for Your Profit First Accounts
When choosing a bank for your Profit First accounts, look for one that doesn’t charge excessive fees for multiple accounts.
There are several NEO banks that you can use that offer no fees for multiple accounts.
If you’re getting hit with fees, don’t hesitate to reach out to your bank and ask if they can waive them. Often, if you keep a decent balance in your accounts, they’ll be willing to work with you.
Some new banks, like Relay and Mercury, are even designed specifically for the Profit First method, offering tailored services that make managing multiple accounts easy and efficient.
Profit First Allocations
Profit Allocations are an easy way to manage your money and cash flow.
Following the "Profit First" allocations, you will allocate a certain amount of your "Net Revenue" to different account categories in your business.
These different account categories are:
"OPEX" or Your Operational Expenses.
Owner Pay or the Amount you'll pay owners
Taxes for self employment and income related taxes
Profit
The allocations will vary depending on the amount of net revenue earned. This term is used in the book, but the definition of net revenue is the same as gross profit. Net Revenue is the Total Income minus the cost of materials and subcontractors. It's gross profit.
Below is a list of target allocations from the Profit First Book.
Remember, that allocations will vary depending on what type of business you have, and it's important to play around with the allocations.
Managing Your Money Monthly with Profit First
One of the biggest advantages of the Profit First system is the clarity it brings. Instead of waiting for a monthly report to see how your business is doing, you can log into your accounts at any time and see exactly where you stand.
This real-time insight allows you to make informed decisions and manage your cash flow more effectively.
Done with an accountant or Fractional CFO, you'll have magical books and cash flow a plenty!
Bi-monthly, you’ll transfer a percentage of your income to your different accounts based on your business needs. For example, you might allocate 50% to owner’s compensation, 30% to operating expenses, 15% to taxes, and 5% to profit.
These percentages can be adjusted as your business grows and your needs change, giving you flexibility and control.
The Profit First Mentality
The Profit First Mentality can be summed up to taking control of your money by putting in the controls to limit your temptation. Like every good habit, you have to have the system to do it, and also participate in the system.
It's shifting your mindset away from the traditional way of thinking about profit, and building a new mindset about how you see profit and how you manage your finances.
Why Profit First is a Game Changer
Using Profit First, you will gain a new level of confidence and clarity. You’ll be able to manage your money in your business.
You will know where your money is going, you’ll save more, and you’ll be able to make better decisions for your business.
Profit First isn’t just about bookkeeping—it’s about taking control of your financial future and ensuring that your business is always profitable.
Getting Started with Profit First
If you’ve been struggling with managing your money or feel like you’re constantly playing catch-up with your finances, you can give Profit First a try! It’s a simple, effective way to take charge of your money and build a financially healthy business.
If you're ready to take control of your finances and start using Profit First, you can start even if you have a small number of clients. The earlier you begin prioritizing profit, the better.
Ready to Take the Next Step with Profit First?
If this approach resonates with you and you're ready to start prioritizing profit, I encourage you to dive in and try Profit First.
You can check out your Cash Flow Blueprint, which will walk you through Profit First, plus some other amazing tools you can use for your business.
And remember, you don’t have to do it alone. Join the Growth Club to connect with others who are also on the journey to financial clarity.
You can ask questions, share your experiences, and get support as you implement the Profit First system in your own business.
If you're still reading this, take some action!
It's about the small micro steps you take that will help you reach the financial results you're looking for.
Disclaimer: This is not financial advice and I'm not associated with Profit First in anyway.
